The UAW’s Suicide Pact With GM-Ford Stellantis

CHECK THIS ONE OUT. I PLAYED A BIG HAND SETTLING THE 2019 UAW STRIKE. THIS LATEST ONE IS A DOOZY.

The smashmouth victory of the United Auto Workers (UAW) over GM, Ford, and Stellantis conjures up two Wall Street clichés: “Don’t confuse brains with a bull market,” and “pigs get fed, hogs get slaughtered.”

UAW president Shawn Fein is being rightly lauded for the innovative strategy he used to bring the big three automakers to heel.  Historically, the UAW struck only one automaker, eventually cut a deal, and then forced that deal on the other automakers.  With this “pattern bargaining” approach, however, the UAW steadily lost ground over the last several decades – wage hikes lagged productivity and inflation, plants closed, and pension benefits eroded.

This time, the UAW strategically attacked key production and supply chain nodes across all  three automakers.  These surgical strikes minimized lost wages for striking UAW members while inflicting maximum punishment on the automakers.

The resultant deal dramatically raises wages and restores a cost-of-living-adjustment (COLA) lost in 2009.  It also enhances profit sharing, provides two years of income security and healthcare for laid off workers, improves pension benefits; provides the right to strike in the event of future plant closures; and incentivizes further unionization at currently non-union U.S. plants like Elon Musk’s Tesla and Japan’s Toyota.

Given the pact’s exorbitant price tag, one must ask in an era of intense global competition and a rapid transition to electric vehicles whether the UAW wildly overplayed its hand, whether the automakers capitulated to a foolish deal, and whether between the two warring parties, they have essentially entered into a suicide pact.

Enter the Wall Street cliché: “don’t confuse brains with the bull market.”  The putatively brainy UAW president Fein had two very bullish things working in his favor that no previous UAW president had ever seen.

First, UAW negotiators benefitted from the biggest bull market for workers since the end of World War II.  The unemployment rate oscillates around historic lows, labor shortages abound, and any damn fool could negotiate a very good contract in such conditions – Shawn Fein simply stuck the knife into the hilt.

Second, the automakers themselves are as bullishly flush with profits as they may ever get. These historically high profit levels gave the automakers perhaps false hope that they could deliver unprecedented wage hikes and other benefits.  Soaring profits also gave the union the moral high ground argument that fat cat executives needed to share far more company profits with the rank and file.

Here’s the obvious fear: Fein and the UAW cut such a “hoggish” deal that the UAW rank and file will not get fed over the longer term.  Instead, the U.S. auto industry itself, saddled with high costs. will get slaughtered by the heavily subsidized foreign competition from the likes of Japan, South Korea, Mexico, and Communist China. 

Consider here that Joe Biden’s war on fossil fuels under the twin banners of “fighting climate change” and “advancing environmental justice” has sent the U.S. auto industry hurtling down the path of an all-electric vehicle (EV) future.  Lost in this transition will be the U.S. manufacture of internal combustion engines -- the highest value-added component of any fossil fueled automobile and a key driver of corporate profits and union wages. 

Replacing the manufacture of internal combustion engines will be the production of EV “engines” otherwise known as batteries.  However, Communist China has such a huge advantage in EV battery production that no amount of US taxpayer subsidies can overcome that.  If the batteries are produced mostly in Communist China, so, too, will most of the EVs themselves – and one very big reason will be skyrocketing US labor costs.

Here’s the more subtle fear: the putatively “American” citizen Elon Musk continues to move the bulk of his Tesla production to China.  He is already engaging in predatory pricing – with the help of illegal Chinese subsidies – designed to put EV production in America out of business.  The UAW has just given Musk yet another leg up.

A second competitive problem US automakers will likely face is a wage-price spiral.  The lucrative UAW wage hikes coupled with its COLA will contribute to that spiral!  Note here that, in reaction to the UAW settlement and to stave off possible unionization, Toyota has already increased wages at its non-union U.S. plants.

Any wage-price spiral will mean the Federal Reserve will keep interest rates high likely for a very long time – it took ten years to wring inflation out of the economy in the 1970s.  In the meantime, high interest rates on car loans will directly depress auto sales and indirectly lead to slower economic growth and possible recession.  Bye, bye, then, to those historic automaker profits.

The one glimmer of hope the US auto industry has for a robust future may well be the return of Donald Trump as president in 2025.  He would eliminate Biden’s EV mandate and restore the primacy of fossil fuel. 

If 2017 past is 2025 prologue, Trumpian policies would also likely bring a far swifter end to the current wage price spiral and collateral high interest rates than the profligate spending Democrats and Congressional RINOs that collectively constitute the Uniparty. 

And yes, Trump would slap stiff tariffs on Made in China EVs, starting with Elon’s slave labor Teslas.  As Trump likes to say, “let’s see what happens.”